Why would somebody pay $170,000 for a computer-generated kitty? Or $154,000 for a virtual plot of land? How about a painting engraved with part of Bitcoin’s founding code being auctioned off for $130,000 at Christie’s in New York? The answer to these questions, at least in part, is explained by the phenomenon of non-fungible tokens (NFTs).
Although they sound complicated, NFTs can be simply defined as identifiably unique crypto tokens. Like a specific key that opens a specific door, except that, because of the robust qualities of the blockchain, the key cannot be copied, swapped for a similar key, or broken down into smaller components. For the first time, internet users can truly prove that they are the legal owners of digital assets.
Another advantage of NFTs is their potential for both protecting and creating digital scarcity. Crypto Kitties is an Ethereum-based dApp where users can breed and create cute digital cats, with their appearance being determined by their unique genetic code. The kitties are represented as non-fungible tokens on the blockchain, and the more rare features they have, the higher their potential value. The most expensive kitty ever was sold this year for 600 ETH (approx $170,000 at the time of purchase). As our lives shift increasingly online, our pets are not the only things that will make the move across with us.
Decentraland is a virtual reality platform where users can buy, sell or spend time on plots of digital land. The ownership of this land is stored in Ethereum smart contracts, and the pricing works in pretty much the same way as the real life housing market. Users can even use their land to place advertisements for real products and services, and the Decentraland blockchain itself serves as a platform from which developers can build their own digital economies or gaming dApps, giving the platform a customisable element similar to that of Minecraft. The platform aims for complete decentralisation, which means that nobody (including the developers) can shut down the servers, or ban certain profiles from the game. In an online world where land has been traded for as much as $154,000, this is an ethos of great importance for many users.
Gaming and collectibles are the dominant current use case for NFTs, perhaps demonstrated best by blockchain gaming platform Enjin, which has recently created a collection of in-game items (such as weapons, costumes and tools) which can be used across any games that support Ethereum’s non-fungible tokens. Blockchain platforms such as Cosmos and Polkadot and working on ways to create a cross-platform consensus, which would in theory allow gamers to take their unique and treasured items across any game on any platform, so perhaps we don’t have to wait long until gamers can summon their own private army of Crypto Kitties to join their war effort on Call of Duty.
Another area which seems like a perfect match for NFTs is the art world. Christie’s Auction House in New York recently sold the blockchain-inspired artwork ‘Block 21’ for over 10 times it’s estimated price. The hand-sculpted piece itself, which was created by Robert Alice, is a unique and verifiable non-fungible token, and was created with the intention of making ‘something of real cultural value within the Bitcoin sphere’. It isn’t difficult to see how useful NFTs will be to art collectors, who could otherwise potentially spend millions on a fraudulent imitation that has been signed and passed off as the real thing.
The technology behind non-fungible tokens is still young and raw, but the potential for digitising real-world assets and data is huge. In a time of online fraud, deepfakes, and identity theft, the advent of Bitcoin and non-fungible tokens gives us definitive, digital proof that we paid the money we had to pay, we own the items that we say we own, and perhaps more importantly as we advance into the age of artificial intelligence, that we are who we say we are.